Ever increasing electricity demand has placed a huge burden on power grids. Conventionally, generation is usually forced to follow varying loads in power systems. To compensate for capacity shortage during peak times, grid operators (GOs) are required to build more backup generation capacity. However, this conventional approach has faced criticism for a range of reasons, including heavy investment, underutilization of generators during off-peak times, and carbon emission issues. In addition, the growing penetration of renewable resources (e.g., wind and solar energy) has brought new challenges to power grid management due to their intermittent generation. As a result, GOs must leverage various means to accommodate their intermittence, and there is thus some hesitation in relying on renewable energy systems to compensate for system resource deficiencies during peak hours.
With the advent of the smart grid, demand response (DR) now plays a more active role in improving grid efficiency and reliability, as it introduces the ability to react quickly to supply-demand mismatch by adjusting flexible loads on the demand side.
The appropriate utilization of demand side resources can reduce the need to build expensive backup generators and help to accommodate further penetration of intermittent renewable generation. As a main branch of DR programs, incentive-based programs (IBPs) rely on contractual arrangements designed by policymakers (GOs or utilities) to elicit demand reductions from customers during program “events”, which might be triggered in response to a price spike or a system contingency that threatens power system reliability. IBPs provide enrolled customers with incentives to reduce their load that are separate from, or additional to, the retail electricity rate.
Although the history of DR resource participation began with individual utility programs, recent research demonstrates that there is greater underlying significance from DR resources if they can be directly dispatched by a regional system operator. The experience of the California Independent System Operation (CAISO) scheme shows that the inability of CAISO to dispatch DR resources directly has limited the growth of DR. In this regard, transitioning DR resources from utility-designed programs to system operator-controlled programs is expected to improve the effectiveness and efficiency of power system operation. However, proper mechanisms or financial incentives to accomplish this transition are still absent. In other words, effective compensation mechanisms are needed to reflect the value of DR in the wholesale market, from the view of a GO.
Related technologies are described in, for example, Korean Patent No. 10-1133934.